A parody is a spoof, a mockery of something. In literature, parodies are used to criticize and poke fun at something. By imitating the very thing that is the object of the spoof, an author can criticize something in a humorous way. Truly successful parodies are sometimes not even realized until perhaps at the very end. Sometimes they are not realized to be satire at all!
Some famous modern parodies are The Daily Show and The Colbert Report. These two shows are "pretend" news broadcasts, but they are not genuine and poke fun at real news reports. In this way, they present a humorous critique of what is really taking place on the daily news shows.
Parodies are also used within larger works to make a point or for comic relief. Shakespeare often does this. In King Lear, Lear's fool appears in a performance that is meant to parody the king himself and point out what a real fool the king is.
Several "publications" are parodies - The National Lampoon, The Onion, Mad Magazine.
For more information about parody, see the links below.